Chinese luxury consumers are moving away from glam, toward services

I attended the “China Luxury Grand Ceremony” yesterday, an underamplified, underfed and overheated affair that was, despite being poorly organized, more stimulating than I expected from the PDF program. We’ve all read the standard China luxury consumer story, and I didn’t expect to hear much different this time. “Wow, Chinese people sure do like to load up on glam when they travel abroad!” That and how the Chinese consumer – specifically the absurdly nouveau riche consumer – is saving Western luxury brands.

There was plenty of that, but there were also a few presentations that deviated from the standard script and complicated my theory of China and Veblen Goods. One of the more interesting was a presentation by Guy Salter of Walpole, an organization that represents the British luxury industry. Salter riffed on a McKinsey report on luxury (presented separately) and argued that Chinese luxury consumers are becoming more “discerning.” If this sounds like snobbery to you, maybe it is, but what do you expect from an envoy of the British luxury industry?

But ultimately, Salter’s point was fairly scientific. He noted that, historically speaking, luxury and discernment were tightly linked: Luxury products were once designed to spec for wealthy aristocrats who had the time, education and money to know exactly what they wanted. However, as wealth democratized, luxury brands developed that could be purchased ready-made by anyone with cash. This meant a relative decline in discernment; think of the sons and daughters of American robber-barons marrying into English titles.

The accessibility of luxury made luxury both more profitable and less valuable. The weathy Westerners responded by redefining luxury in ways that were less accessible to anyone with a credit card: exclusive services, vacations, “experiences.” Luxury products themselves became less obvious to the poor, but recognized by those “in the club.’ Another variant of this was “conspicuous non-consumption:” people who are understood to be rich by the things they never buy (polyester anything), food they never eat (non-organic), places they would never live (suburbs).

Anyway, China may have saved the luxury industry, but it was a great disaster for discernment. The speed at which Chinese people became wealthy was matched only by their lack of experience in buying luxury products. They kept it simple, and they kept it Western, and they kept it physical. “Screw experiences, I’ll take ten handbags – that one, with the logos that are three feet wide and blink on and off at night.” How much they differed from America’s nouveau riche would be an interesting point of comparison. (Now seeking academic columnists on this topic!)

So, the comforting stereotype of the not-very-discriminating Chinese handbag shopper was born. But Western luxury brands who want to coast on this trend need to watch out, if Salter is right.

Salter said that Chinese luxury consumers are themselves starting to move away from bling and towards more understated forms of luxury. As evidence, he offered the Cabat by Bottega Veneta. The Cabat is a handbag, of course, and it retails for around $5,000. So far par for the course, but there’s a difference. Salter threw a slide of the bag up on the screen: “Where’s the logo?” he said. There is none in evidence, and yet the Cabat is one of the most popular selling luxury bags in China.

The problem, of course, is the clash between the nouveau riche and the nouveauer riche, first explained in detail to me by our columnist Paul French. To reiterate: In China, the arrival of the tubaozi, the much-ridiculed “potato buns” from the countryside who got rich without ever living in a sophisticated first-tier city, has made it difficult for the sophisticates of Shanghai and Beijing to distinguish between the wife of a cement factory owner from Hunan and the wife of a real estate developer from Chaoyang. They both have the same Gucci bag! They both bought it it Paris! At the flagship! Their sons both own Ferraris, which they both wrecked while terrorizing pedestrians in downtown someplace-or-other. Maybe this is being hard on the rich … but what the hell.

The other part of this trend is an increased demand for services. A lot of people have waited a long time for Chinese “experience” tourism to flower. According to Salter, Chinese tourists are starting to sign up for tours of French chateaux, and offering to pay to meet the head winemaker, the owner of the demesne, and dine on actual French food instead of just being photographed in front of romantic-looking French restaurants.

The takeaway is that the era of easy money is over, and Western luxury lines are going to have to get creative about localization instead of coasting on foreign cachet.

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